ACC230 / ACC 230 / CheckPoint: Analyzing an Income Statement
CheckPoint: Analyzing an Income Statement
Resource: Ch. 3 of Understanding Financial Statements • Complete Problem 3.16b on p. 111 (Ch. 3).
Analyze the income statement of Eastman Kodak located at http://wps.prenhall.com/bp_fraser_financial_8 (Select Chapter 1 from the top menu, then Internet Links in the left-hand menu to access the income statement.)
Write a 200- to 300-word response to the problem. In addition, include your analysis of indicators like earnings per share, operating income, and comprehensive income.
Eastman Kodak Company – I have looked at the differences between the operating income, total liabilities, and the total shareholder’s equity.
As we look at the company’s assets we can see that there were substantial changes that occurred from 2003 to 2004. In 2004 there was a $5000 increase in cash and equivalents. There was an increase of $217 million in the net receivables for 2004. In the net inventories for 2004 the company saw an increase of $80 million. In comparison from 2003 to 2004 the company’s deferred taxes had decreased $40 million. In 2004 the other current assets were $24 million less than in 2003. In the discontinued operations the company saw a decrease of $42 million. In 2004 the company saw a decrease of $539,000 in property, plant, and equipment net. In 2004 the company had increased their goodwill assets to $97,000 and had raised their long term assets to $202,000.The company did not claim any discontinued operations in 2004 for the company’s long term assets. In the end this left the company with a total decrease of $109,000 in total assets for 2003 to 2004.
The company’s liabilities and stockholder’s equity it was shown there were many changes that occurred during 2004. In 2004 there was a decrease in long term debt and the net of current portion was $450,000. In 2004 the company also saw a deduction of $36,000 in pension and postretirement liabilities and an increase of $84,000 in other long term liabilities. In combination the liabilities were $675,000. There was an increase of $407,000 in retained earnings in 2004 while common stocks and additional paid in capital remained the same. There was an increase of $148,000 in the accumulated other comprehensive loss and an increase of 3,000 unearned restricted stocks. There was also a decrease of 8,000 in treasury stocks at cost. In total there was an increase of $566,000 in the shareholder’s equity and a decrease of $109,000. In return this is the balance for the total assets and liabilities for the company. In my opinion, there is some concern here for the stockholders, because of the decrease of the net income from 2003 to 2004.
Eastman Kodak appears to be profitable even though their net income has decreased. They show an increase in sales since from 2002 to 2004, but their operating costs also increased by 15.3 % from 2002 to 2003. The increase in sales was primarily through acquisitions and the impact of foreign exchange rates on their holdings. Kodak’s largest holding, Digital and Film Imaging Systems, experienced a 1% decrease during this period. In a comparative analysis of the years 2003 and 2004, Kodak increased their current assets and decreased total assets. This reflects the disposal of assets such as equipment, plant and property, and complete discontinuance of certain operations. This decrease in total assets can be seen as a prudent move in their restructuring process. They also decreased their number of employees in 2004 and cut back on their advertising expense.
Kodak has decreased total liabilities by 4%. This is the result of decreases in short term and long term borrowings. By paying off debt, the company is improving its overall financial position. Kodak also sows a positive net profit margin even though they show a loss in 2004. Kodak’s other income in 2004 resulted from settlements in favor of Kodak which will not recur in future periods. There is a drop in total shareholder’s equity, but they have shown an increase in the equity percentage held by the company. This seems to be the result of $104k more shares in 2004 than in 2003, since the total number of shares outstanding remained constant in 2003 and 2004. Retained earnings on stock increased in 2004. The company seems to be in good standing from a profitability viewpoint. If they continue with the changes to the company’s structure, they should be able to stay in a profitable income margin.